Howden Joinery steady for now but pressure on profits needs to be watched

Total revenues from UK depots between mid-June to the start of November rose 7.5%. This was largely based on volume growth as the company keeps its pricing keen in order to stay competitive.

In the first half UK depot sales were up 12%, although the first half of last year was quite weak. Ultimately, today's growth still implies a slowdown and, with pricing pressures ongoing, could spell problems for profits down the line.

As well as staying competitive on price, Howden like other suppliers is seeing an increase in raw material costs.

HOME IMPROVEMENT

Howden sells kitchens and joinery products to trade customers, mainly small local builders rather than the big house-building firms.

Gross margins, or sales minus the cost of goods sold, are described as ‘in line with management expectations’ which we take to mean down on the same period last year, as they were in the first half.

It is also continuing to invest in its manufacturing plants and has upped the number of UK sales depots it plans to open this year so operating costs and working capital outflows are above previous estimates.

STILL OPTIMISTIC

The board remains confident that earnings are on track to meet full year targets. Market expectations are for a 4% to 5% increase in pre-tax profits on last year's £232.2m.

While the majority of its depots are in the UK, Howden’s European business is chipping in with sales up 9% in the first half in sterling terms, helped by the weakness of the pound against the euro.

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